Beginning Jan. 1, 2018, the cannabis cultivation tax and excise tax will take effect. Cannabis businesses need to be aware of the new tax rates and how they apply to their business activities, said officials from the California Department of Tax and Fee Administration.
Cultivation Tax: Cultivators are responsible for paying the cultivation tax on all harvested cannabis entering the commercial market to the distributor (or to the manufacturer if that is where the first transfer or sale of unprocessed cannabis takes place). Manufacturers who collect the cultivation tax are required to pay the tax to the distributor. The distributor reports and pays the cultivation tax to the California Department of Tax and Fee Administration (CDTFA). The current cultivation tax rates are $9.25 per dry-weight ounce of cannabis flowers, and $2.75 per dry-weight ounce of cannabis leaves.
Excise Tax: Both cannabis and cannabis products are subject to an excise tax. Retailers are responsible for collecting the cannabis excise tax at the time of the retail sale and for paying the tax to the distributor, who reports and pays the cannabis excise tax to the CDTFA. The current excise tax rate is 15 percent of the “average market price” when purchased at retail. The average market price is the wholesale cost of the cannabis or cannabis products sold or transferred to the retailer, plus a mark-up predetermined by the CDTFA. In some cases, the average market price is the cannabis retailer’s gross receipts from the retail sale. The current mark-up rate is 60 percent. The CDTFA is required to determine the mark-up rate every six months. The rate will be posted on the website at www.cdtfa.ca.gov.
Sales and Use Tax: Sales and use tax applies to retail sales of cannabis and cannabis products after the excise tax has been added. Sales and use tax does not apply to sales of medicinal cannabis and cannabis products where a purchaser provides his/her Medical Marijuana Identification Card issued by the California Department of Public Health and a valid government identification card. Current sales and use tax rates can be found on the CDTFA website.
Cannabis Tax Permits/Seller’s Permits: Cannabis retailers, cultivators, manufacturers, and distributors making sales must register with the CDTFA for a seller’s permit. Distributors must register with the CDTFA for a cannabis tax permit to report and pay the cultivation tax and cannabis excise tax. A microbusiness licensee is licensed to act as a distributor, among other things, and must comply with all the same requirements as a distributor. If you make sales for resale, you must obtain a valid resale certificate.
More information about the permits necessary to collect these new taxes is available in the Tax Guide for Cannabis Businesses.